Market concentration, market dynamism and business survival

Abstract

The paper uses a unique dataset comprising the population of new ventures that enter
the UK market in 1998. We argue that we would expect the effect of market
concentration on firm survival to be different according to whether an industry is
static (low entry and exit) or dynamic. In our empirical analysis we find support for
this hypothesis. Industry concentration rates reduce the survival of new plants but
only in markets marked by low entry and exit rates. Specifically, a 10 percent
increase in the 5-firm concentration ratio or the Herfindahl index in a dynamic
market, raises the survival rate of new ventures by approximately 2 percent. Our
results suggest greater leniency towards more dominant firms in industries showing
buoyant entry and exit rates